Poverty, Unemployment, Recession, deficit and US are Uttered in The Same Breath these days. For Obama, The Present ‘Jobless’ Recovery makes his task tougher than ever – The United States just Reached The Second Highest Poverty level Figure in its own History03/02/2011

One in seven people are poor here. And this trivia is not for countries like ours or even some sub-Saharan nation. We are actually talking about the US of A. According to the latest US census released in January 2011, around 47.8 million people in the US are under the grips of poverty, up from 43.6 million in 2009 and 39.8 million in 2008. Around 15% of rural Americans suffer from this menace.

On an average, around 14.3% Americans are below the poverty line, an increase of 1.1% compared to last year. This increase in poverty is not only because of recession; but also due to the high unemployment rate, which is 9.6% as per latest figures. Interestingly, this jump in poverty is the highest single-year increase since the census begun in the US. A trend analysis shows that this is the second highest poverty figure in US history. The highest was 22.4% during 1959. It dropped to 11% in 1973 and has been oscillating between 12-14% since then. As per the US definition of poverty, any family (family of four) earning less than $22,025 per annum is regarded to be poor. The median household income fell to $49,777 in 2009 from $50,112 in 2008.

But, the statistics that really catch your fancy are with respect to the gap between the rich and the poor. Around 20% of the total income generated in US economy goes to the wealthiest 1%, a jump of 12% since the last five decades. When almost all Americans were suffering from recession in 2009 and many were pushed below the poverty threshold, the average income of the top 5% paradoxically increased.

This historical increase in poverty rate, especially during Obama’s regime, has raised many questions on his policy towards fighting poverty. From his end, Barack Obama approved a package of $180 billion in business tax breaks and infrastructure spending to boost the economy and eventually create new jobs and contain poverty to some extent. But such tax breaks mostly help the upper strata of society to mint and hoard money. During the regimes of Ronald Reagan and George W. Bush, such tax cuts (and revocation of the Glass-Steagall Act) helped major investment firms like Citigroup grow stronger and increase their lobbying power inside the Congress. Similarly, during the early 1970s, tax cuts introduced by Congress for high income categories along with tax abolishment on capital gains and various other investment income led to increase in the wealth of wealthy at the cost of bottom of pyramid citizens. As per a paper written by Gerson Lehrman Group in August last year, “During the last financial bubble (from 2002 to 2006), the top 1% of Americans received two-thirds of the gain in national income, while the bottom 90% got only 12%.”

In 1964, under John F. Kennedy, tax cuts were provided up to 77% of income. In 1969, under Richard Nixon, separate rates were introduced for individual earners while in 1978 under Jimmy Carter, new income brackets allowed many in the high tax category to escape high taxes. But Reagan gave a major blow by reducing tax brackets and reducing the top rate to 50% (from 77-80%) and then in 1986, he further decreased the number of tax slabs and reduced the already reduced top rate to 28%. Bush Jr. brought the top tax rate down to 35% and also introduced a new slab covering the bottom 10%!

Before the Obama government plays and tweaks with tax cuts and other tax relaxation, they need to go back to history and analyse how such initiatives have helped rich Americans win more. Even a nation like US needs to have the institutional capability to tackle such misuse. Moreover, the onus has to be towards creating employment down the ranks, which isn’t an easy task. Obama himself declared that it is necessary “to improve schools, build the skills of workers and invest in the nation’s critical infrastructure.” While that may take care of the future, it is the present that Obama really has to worry about. And that’s why he needs to ensure that his policy measures actually reach out to those that he intends to benefit, and fast.